Hang Seng Index, ASX 200, Nikkei 225: China in the Spotlight

Highlights

• On Tuesday, the Hang Seng Index led the ASX 200 and Nikkei into negative territory.
• Concerns about the economic outlook for China and the lack of Beijing stimulus measures affected market risk sentiment.
• On Wednesday, economic indicators from China warrant investor consideration.

Overview of the Tuesday Session

On Tuesday, the Hang Seng Index led the ASX 200 and Nikkei into negative territory. Investor angst over the Chinese economy impacted the appetite for riskier assets. Significantly, the Nikkei ended the six-day winning streak as investors locked in profits.

Investor jitters toward Fed interest rate plans contributed to the negative mood. According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 76.9% on Friday to 66.3% on Tuesday.

The US markets were closed on Monday for Martin Luther King Jr Day. However, US futures set the tone for the Tuesday session. The Dow mini, S&P 500 mini, and Nasdaq mini spent the Asian session in negative territory. 10-year US Treasury yields rose by 0.28% on Monday and continued climbing on Tuesday, hitting an Asian session high of 4.007%.

On Tuesday, the Asian economic calendar contributed to the session losses. Australian consumer confidence unexpectedly weakened in January, suggesting a pullback in consumer spending. Producer price numbers from Japan were also disappointing, signaling a softening demand environment.

US Data, the Fed, Economic Indicators from China

Overnight US economic indicators from Tuesday and Fed commentary will set the tone for the Wednesday session. The NY Empire State Manufacturing Index tumbled from -14.5 to -43.7 in January. Economists forecast an increase to -5.0.

However, comments from FOMC member Christopher Waller garnered more investor interest. FOMC Waller tempered bets on a March Fed rate cut, saying the economy will allow the Fed to move ‘carefully and methodically.’ The comments coincided with concerns the Red Sea crisis could impact supply chains and inflation.

The US equity markets responded to the stats and Fed commentary. On Tuesday, the Dow declined by 0.62%. The Nasdaq Composite Index and S&P 500 saw losses of 0.19% and 0.37%, respectively. 10-year US Treasury yields surged by 2.78% to 4.0628%.

While the US session will set the tone, economic indicators from China will impact market risk sentiment. Industrial production, fixed asset investment, retail sales, unemployment, and Q4 GDP numbers warrant investor attention. Weaker-than-expected GDP numbers, softer industrial production, and retail sales could spook investors.

Beyond the numbers, Bank of Japan commentary, stimulus chatter from Beijing, and geopolitics also need consideration.

In the futures markets, the ASX 200 and Nikkei were up 4 and 210 points, respectively.

ASX 200

The ASX 200 declined by 1.09% on Tuesday. The losses were broad-based, with tech, gold, oil, mining, and bank stocks ending the session in negative territory. On Tuesday, the S&P ASX All Technology Index (XTX) declined by 0.73%.

Gold (XAU/USD) and oil stocks suffered heavy losses. Northern Star Resources Ltd. (NST) and Evolution Mining Ltd. (EVN) saw losses of 1.91% and 3.35%, respectively, on Fed policy jitters. Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) slid by 1.58% and 1.79%, respectively. Concerns about oversupply and lackluster demand countered escalating geopolitical tensions in the Middle East.

Bank stocks tracked the broader market into negative territory. Westpac Banking Corp. (WBC) and ANZ Group Holdings Ltd (ANZ) declined by 0.94% and 0.81%, respectively. National Australia Bank Ltd. (NAB) and Commonwealth Bank of Australia (CBA) fell by 0.71% and 0.58%, respectively.

A further decline in iron ore prices attributable to concerns about the Chinese economy impacted mining stocks. Fortescue Metals Group Ltd. (FMG) tumbled by 2.17%. Rio Tinto Ltd. (RIO) and BHP Group Ltd (BHP) saw losses of 1.29% and 1.44%, respectively.

Hang Seng Index

The Hang Seng Index slid by 2.16% on Tuesday. The Hang Seng Tech Index (HSTECH) ended the session down 2.29%. Property stocks saw more losses. The Hang Seng Mainland Properties Index (HSMPI) declined by 3.21%.

Alibaba (9988) and Tencent (0700) slid by 2.29% and 2.42%, respectively.

Bank stocks also ended the session in negative territory. HSBC (0005) tumbled by 3.04%. China Construction Bank (0939) and Industrial Commercial Bank (1398) ended the day down 1.77% and 1.62%, respectively.

The Nikkei 225

(Graph for reference purposes only)

The Nikkei fell by 0.79% on Tuesday, ending a six-day winning streak.

Bank stocks ended the day in negative territory. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) declined by 1.36% and 0.70%, respectively.

It was also a negative session for the main components of the Nikkei. Fast Retailing Co. Ltd. (9983) and Tokyo Electron Ltd. (8035) saw losses of 1.19% and 1.24%, respectively.

Sony Group Corp. (6758) and Softbank Group Corp. (9948) ended the day down 0.96% and 0.73%, respectively. KDDI Corp. (9433) fell by 0.50%.

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